The Finance Blogger

Consumers are always looking for loans for debt situations they find themselves in or perhaps to purchase new furniture, a new car, etc. Most consumers carry more than one credit card. They use them occasionally to purchase things in their everyday life. You might have a credit card for groceries—another for gasoline for your car and a third for all other purchases. Many stores are trying to obtain your business by offering loyalty credit cards. These credit cards are debt as well. They also carry a very high-interest rate with them on any unpaid balance.

What is the difference Between a Loan and Debt?

Debt is money that you owe to somebody. Debt can be for many things. However, the average consumer will have debt for their car, debt for their home, and debt for their credit cards. Some will also have debt in the form of personal loans. Debt is money that you owe on anything.

Loans are also the money you owe, and loans are debt. It might be a mortgage loan on your home. Loans are usually provided when you borrow money to purchase a car. Every time you purchase something with a credit card, you borrow money at credit card rates.

What kinds of Loans for Debt Are There

Credit card debt or loans is the easiest to describe. When you charge something to your credit card and do not pay this amount at the end of the month, the total owed is carried over to the next month, and you are charged interest on everything you have not paid at high-interest rates. These rates can be around 18% for regular cards, with store and loyalty cards going as high as 28%. These are very high, and if you pay the minimum payment each month, most of your payment will be interest payments and very little to the amount you owe.

Personal loans come in secured and unsecured variations. A personal loan is a debt that you owe to a lender. A secured personal loan is a loan that is secured with some asset that the lender can use to repay the loan if you cannot meet all of the payments. An unsecured loan is not secured with anything, and there is no link to your home, car, or other asset. Secured loans charge a lower interest rate than unsecured loans, much lower than credit card rates.

Mortgage Loans

Mortgage loans are different as well. These are debts and loans; however, they always use your home or building as collateral. As a result, they are always secured and carry a very low-interest rate compared to all other loans and debt. Personal loan payments are usually spread over five years or less. Mortgages, on the other hand, have their payments spread over 25 years or more. With low-interest rates and extended payment periods, the monthly payments are usually relatively low compared to personal loans for the same amount of money borrowed. Mortgages are usually much more significant than personal loans for the average consumer.

What are their Rates for Loans and Debt

We have already discussed credit card debt and the interest rates for that kind of debt. Personal loan rates and mortgage rates vary a great deal and are dependent on the bank rate that the federal bank establishes. These rates have been at historic lows for the past 3 years and are expected to stay that way until the beginning of 2014 when they will rise. This is a long-term forecast; anything can happen over the coming year. Mortgage rates have been as low as 3%, and loans have recently been as low as 8%.

Loans and debt are pretty much the same thing. That debt describes everything you owe, whereas loans describe specific types of debt or money borrowed. Consumers should always try to minimize their debt as much as possible and minimize the interest they pay by consolidating their debt into one low-interest loan.

For more posts about how to handle debt management issues, click here.

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